Advocacy Group Fighting Tax That Could Hit Retirement Plans

While an analysis by Modern Markets Initiative focuses specifically on public pension funds, the company notes that the tax will affect all defined benefit (DB) plans, individual retirement accounts (IRAs), defined contribution (DC) plans and individual investors.

The Inclusive Prosperity Act of 2017 has been introduced in the Senate and includes a financial transaction tax (FTT).

According to Modern Markets Initiative (MMI), the FTT would be applied to every stock traded, including a 0.5% rate on equity, a 0.1% rate on debt and a 0.005% rate on derivatives. MMI, an education and advocacy organization, which is strongly opposing this tax, has done an analysis of what its costs would be for pension funds and all investors.

For example, using asset allocations in 2015 for the California Public Employees’ Retirement System (CalPERS), as well as published data about its trades, MMI calculated the FTT would be $508,374,705. “That’s not a typo—CalPERS and the hardworking public employees it invests for would have paid more than half a billion dollars in tax in 2015 alone,” Wegner writes.

MMI’s analysis also finds the Federal Thrift Savings Plan would be hit with roughly $250 million in annual fees, and a hypothetical local public pension fund portfolio with $2 billion in assets would be on the hook for an additional $4 million in an average year.

For each pension fund evaluated in the report, analysts have provided detail on the asset class exposure, calculation methods, spread costs and other considerations related to that institution.

“Our detailed analysis shows that the FTT’s negative impact on pensions and institutional investors would be substantial in terms of real dollars,” says Wegner. “Policymakers must now consider how any FTT would ultimately boomerang back on individual investors and pensioners, essentially cutting into their retirement income and savings.”

She adds: “One of MMI’s key principles is transparency, so it was very important for us to share our full analysis with the public. We fully intend to be the industry’s voice when it comes to education and pushing back on the FTT.”